Inside: Pharmacy group purchasing organizations (GPOs) turn Davids into Goliaths. Here’s how.
Independent pharmacies have always been the David to the chain pharmacies’ Goliath. And these days, the pharmacy landscape is becoming even more complicated. Amazon and mail-order pharmacies are offering trendy new services while PBMs continue to encroach on your already-low reimbursements.
It’s easy to feel like there’s no place in the world for your independent operation.
If you’re feeling intimidating going it alone, a group purchasing organization (GPO) could be the empowerment that you need.
What Is a Group Purchasing Organization?
A pharmacy group purchasing organization bundles together multiple independent pharmacies to give them more buying power and leverage than they’d each have as a single entity. The GPO takes the total book of business of all the pharmacies combined to the negotiation table with wholesalers. When pharmacies combine their purchase volume, they get the wholesalers to fight for their business, rather than the other way around. Which gives them the power to demand a better deal.
5 Advantages of Pharmacy GPOs
Here’s more on how a group purchasing organization can help your pharmacy time and money.
As an independent pharmacy, you’re a fish swimming in an ocean with sharks: chains, big box stores, and online pharmacies.
But when you join a group purchasing organization, you’re joining forces with all the other fish in the ocean, and together, you can get the attention and resources you deserve.
When your pharmacy’s prescription volume is pooled with the volume of other pharmacies, wholesalers start to notice. They have more incentive to win over your business, and that gives you leverage.
As a part of a GPO, wholesalers are willing to give you better incentives so you don’t walk away from the negotiating table. They’ll give you better overall pricing than they would if you were negotiating as a single independent pharmacy, and you can turn those low prices into higher profits.
Wholesalers are coming to the negotiating table with their best negotiators. When you go through negotiating as a lone independent pharmacy, you’ll have to do all the talking. You’ll have to read through the contract, understand the nuanced incentive structure, and make a case for why you should get a better deal.
But they don’t teach you about arcane contractual jargon in pharmacy school.
With a group purchasing organization, you’ll have an expert negotiator on your side of the table. Because they’ve negotiated hundreds of contracts, they know what details to look out for. They also know exactly how to work with the wholesalers to get a contract that everyone is happy with.
A good GPO will provide you with an expert that doesn’t just negotiate; they should also collaborate with you to get a contract that’s tailored to your pharmacy needs. The negotiator will walk you through the terms and explain what they mean for your pharmacy so you can feel confident when it comes time to sign on the dotted line.
Good negotiators are one way to get a great contract, but when you add an extra dose of competition into the mix, things really start to heat up.
A good group purchasing organization will create competition by soliciting bids from multiple wholesalers. When there’s more than one option in the mix, wholesalers don’t just have to win you over with a great contract — they have to offer a contract that is even better than their competitor’s contract.
On Drug Channels, Adam Fein explained, “Pharmacy owners have responded to their own profit pressures partly by collaborating with peers via Group Purchasing Organizations (GPOs). These pharmacy buying groups have altered and accelerated wholesaler competition for the business of independent pharmacies … As the GPOs have grown, wholesalers have had to compete more aggressively to win and retain the business of the groups and their members. When a buying group switches its primary wholesaler, the non-selected wholesalers will work hard to retain as much business as possible.”
The way all these terms work together means that you can’t always rely on a drug’s sticker price to get the lowest possible cost of goods every month. If you try to save a few dollars by buying a cheaper option from a secondary supplier, you could miss out on potential incentives.
The most important of these terms is known as the generic compliance ratio, sometimes known as the generic compliance rebate or generic rebate. Because wholesalers make a bigger profit on generics than on brands, they have created a tempting incentive for pharmacies to buy more generics.
The more generics you buy, the bigger your wholesaler rebate will be at the end of the month.
You can estimate your generic compliance ratio using this formula:
Generic Compliance Ratio = Generic Purchases / Total Rx Purchases
Wholesalers have a tiered matrix that determines your generic rebate. The higher your generic compliance ratio, the bigger your rebate. If you have 10 percent generic compliance, you could receive a 10 percent rebate, but if you have 23 percent generic compliance, you could a 33 percent rebate. For most pharmacies, that adds up to hundreds of thousands of dollars a year.
So what does that have to do with your choice of group purchasing organization?
If you choose a group purchasing organization like ProfitGuard, they will help you maximize your rebate from month to month. Their proprietary technology uses predictive data to help you optimize your purchases, enabling you to get the biggest rebate possible.
Easy secondary purchasing
Even with a great contract with a primary wholesaler, there will be times when you need to look to a secondary supplier. When your primary doesn’t have what you need, your group purchasing organization should have your back.
Not all secondary suppliers are created equal, and your group purchasing organization should connect you to a backup that can guarantee quality while still offering low prices.
At a minimum, your backup supplier should have these qualifications:
- State licensure
- NABP accreditation
- Medications sourced directly from the manufacturer
- A track record for filling orders quickly and accurately
- A full range of products
With an excellent secondary in your back pocket, you won’t have to waste time sorting through suppliers’ catalogs to find the lowest prices. Plus, you’ll be able to save money on items that aren’t included in your primary contract.
When you choose ProfitGuard as your group purchasing organization, you’ll gain access to PBA Health’s secondary warehouse. It’s NABP accredited and has a full line of brands, generics, OTCs, and controls. It also has the lowest list prices on the secondary market with perks like cash rebates and steep brand discounts.
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